The NCUA liquidated Melrose Credit Union on Friday. The liquidation came after almost 19 months since Melrose was placed into conservatorship under the NCUA in February 2017. In a press release, the NCUA announced that Melrose Credit Union “was insolvent and had no prospect for restoring viable operations.”
While in conservatorship, the NCUA attempted to restore Melrose’s financial condition. Melrose’s financial problems were just too serious. It had a very high concentration of taxi medallion loans. Taxi medallions are government issued licenses that allow taxis to operate. In New York City, a taxi medallion had cost over $1 million before ride-sharing app-based services like Uber became popular. The ride-sharing services have decimated the value of taxi medallions, which have resulted in mass taxi medallion loan defaults and large losses at institutions like Melrose Credit Union.
According to the NCUA press release, “Teachers Federal Credit Union, of Hauppauge, New York, immediately assumed all of Melrose’s members and shares as well as some loans and other assets.” Note, the press release says “assumed all of Melrose’s members and shares.” Thus, it appears no uninsured shares (deposits) will be lost. If no credit union had acquired Melrose, uninsured shares would not have been covered.
Teachers Federal Credit Union (TFCU) provided more details in its own press release, which included a welcome letter to Melrose members. One important detail is what will happen to member CDs. According to the TFCU welcome letter, “the terms of your loans and Certificate Accounts will remain unchanged, and your checking and savings accounts will be offered at TFCU’s current terms and rates.” Based on this, it appears existing Melrose CDs won’t change. The rates and maturity dates should hold. Often when an institution is taken over after it fails, the new institution will lower the rates of existing CDs. The CD holders are allowed to close the CDs early without penalty, but this may be little consolation if there are no other options for rates comparable to the original CDs. This is less of an issue in a rising interest rate environment.
According to the Financial Times, Melrose is the largest retail credit union to enter liquidation. At the time of liquidation, it had approximately $1.1 billion in assets. Its size had fallen considerably in the last four years. In 2014, it had more than $2 billion in assets.
Melrose Credit Union had been popular at DA due to its easy membership requirements and competitive CD rates. I first reported on Melrose Credit Union CDs in 2006. Ever since I have been reporting on Melrose, it has operated with an open charter which allowed anyone to become a member regardless of geographical location or affiliations.
Melrose is the fifth federally-insured credit union to be liquidated in 2018. Two of the liquidated credit unions were tiny with assets under $1 million. The other two liquidated credit unions were small compared to Melrose, but they had assets over $10 million. These two include Louisville Metro Police Officers Credit Union ($20 million in assets) and First Jersey Credit Union (almost $86 million in assets).
Credit unions have been the only institutions failing in 2018. No banks have failed so far in 2018. The last bank failure was on December 15, 2017.
References to Help Keep Your Deposits Safe:
In our bank health ratings page, we have a list of the banks and credit unions with the worst Texas Ratios. The Texas Ratio is an industry standard for calculating the health of a bank, but is not the only factor to consider. Our data is based on financial data from the FDIC and NCUA. A Texas Ratio over 100% is considered at risk.
- FDIC deposit insurance summary
- NCUA deposit insurance summary for credit unions
- Bank and Credit Union Health Page with Listing of Texas Ratios
- Federal and Private Deposit Insurance Coverage Limits
- Maximize Your FDIC Coverage with Beneficiaries
- Review of 2016 Bank Failures